Hoku Update on Polysilicon Facility

Hoku Materials, Inc., a subsidiary of Hoku Scientific, Inc. (NASDAQ: HOKU), announced the arrival of the first shipment of Siemens-process reactors, key equipment used in the production of polysilicon, at the company’s facility in Pocatello, Idaho.

Hoku reported it had received six such polysilicon reactors at its project site, and that the first two polysilicon reactors have already been assembled and installed on the production floor. The reactors, which were manufactured in Germany by GEC/MSA, are the first units to arrive in Pocatello out of a planned total order of 28.

Hoku had expected to receive the reactors in December 2008, but reported that their delivery had been affected by unusually heavy winter weather on the U.S. west coast and the customs process. The next shipment of ten polysilicon reactors and related equipment is planned to arrive at Hoku’s facility in March 2009.

"The arrival of the first polysilicon reactors in Pocatello marks a very significant milestone in our polysilicon project," said Dustin Shindo, chairman and CEO of Hoku Scientific. "These polysilicon reactors are the most critical individual components in our planned production process, and are among the longest lead-time equipment on our procurement schedule."

Hoku also noted that, as of the beginning of January 2009, construction of the plant was proceeding according to schedule. Hoku provided a general update on its project progress and financing. The company has had difficulty over the last year arranging financing for the proposed facility.

The company noted that it had received a total of $106 million in customer prepayments, and that all of its customers were now current on their prepayment obligations, except for Wealthy Rise International, Ltd. (Solargiga). Solargiga was to have paid Hoku $43 million of its total $68 million prepayment commitment by the end of calendar year 2008, but Hoku confirmed Solargiga had not yet fulfilled this obligation.

"We are keenly aware of the challenges created by the current international financial market conditions and know that companies throughout the solar value chain have been deeply affected," said Mr. Shindo. "We are willing to continue working with Solargiga to find a way to move the engagement forward, but our first priority is to ensure that we are able to fulfill our product delivery obligations to all of our other customers. As a result, we are considering all options afforded us through our take-or-pay contract with Solargiga, including unilateral resale of their allocated capacity, among other potential remedies."

Including the revised prepayment schedule in the Jinko Solar contract amendment, a total default by Solargiga would cause a net reduction of $90 million in Hoku’s current customer prepayment commitments as compared to September 30, 2008. This would reduce Hoku’s aggregate customer prepayment commitments from a total of $306 million to $216 million, which would reduce the cash available for construction of Hoku’s polysilicon plant.

Hoku stated that it believes it could defer approximately $40 million in capital expenditures by delaying construction of its on-site tricholorosilane (TCS) production facility. The company stated it is in negotiations with third party TCS producers for a TCS supply contract to enable Hoku to execute on this strategy, if necessary.

Hoku noted that, depending on factors such as contract resolution with Solargiga and the timing of resale of Jinko Solar’s recaptured capacity, the size of additional prepayments by new polysilicon customers, and any decisions to purchase TCS, the amount of additional funding for construction of its polysilicon plant could range from $3 million up to $83 million. Hoku intends to use a combination of debt and/or equity to meet any additional funding needs.

Mr. Shindo concluded, "We remain confident in our ability to produce polysilicon in the first half of calendar year 2009, and to deliver polysilicon to our current customers according to the terms of our agreements with them."

Website: http://www.hokucorp.com     
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